Thursday, 7 May 2015

Offshore oil and gas safety - a regulatory overhaul

May 7, 2015. 

Environment analysis: The Offshore Safety Directive, adopted by the EU in 2013, aims to prevent major accidents relating to offshore gas and oil operations.

Original news: Offshore Petroleum Licensing (Offshore Safety Directive) Regulations 2015, LNB News 23/03/2015 175. The European Commission’s Directive 2013/30/ EU on the safety of offshore oil and gas operations (Offshore Safety Directive) and its requirements relating to licensing and certain environmental matters relating to emergency response is implemented in the UK on 19 July 2015.

What are the main objectives of the Offshore Safety Directive and the implementing regulations?

The Offshore Safety Directive has its origins in the EU’s response to the Macondo disaster in 2010 in which a gas release and explosion occurred on an oil rig in the US Gulf of Mexico. Following a review, the EU Commission felt that the Macondo incident highlighted the EU offshore oil and gas industry’s lack of universal mandatory safety procedures. In particular, it suggested a fragmented regulatory structure and lack of any overarching, cohesive legislative framework.

The EU adopted the Offshore Safety Directive on 10 June 2013 with the stated aim ‘to reduce as far as possible the occurrence of major accidents relating to offshore oil and gas operations and to limit their consequences’.

How will the regulations be implemented?

The UK is required to implement the Offshore Safety Directive via its national legislative framework. In order to meet the requirements of the new Directive, three existing UK regulations are to be amended and three additional pieces of legislation are to be introduced, as follows:

Amended regulations
  • the Offshore Installations (Presentation of Fire and Explosion, and Emergency Response) Regulations 1995, SI 1995/743;
  • the Offshore Installations and Pipelines Works (Management and Administration) Regulations 1995, SI 1995/738; and
  • the Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998, SI 1998/1056.

Additional regulations
  • the Offshore Installations (Offshore Safety Directive) (Safety Case etc) Regulations 2015, SI 2015/398;
  • the Offshore Petroleum Activities (Offshore Safety Directive) (Environmental Functions) Regulations 2015; and
  • the Offshore Petroleum Licensing (Offshore Safety Directive) Regulations 2015, SI 2015/385 (Offshore Licensing Regulations).

The majority of the Offshore Safety Directive’s requirements will be transposed into national law by the Offshore Installations (Offshore Safety Directive) (Safety Case etc) Regulations 2015. As far as the UK is concerned, many of the requirements are met in already stringent regulation but operators and contractors will still see some significant changes and differing terminology.

The Offshore Licensing Regulations have been drawn up in order to bring in the specific licensing requirements of the Offshore Safety Directive. They establish the criteria which companies undertaking offshore activities (such as, for example, exploration work or petroleum extraction) will have to meet in order to obtain an offshore license and set out the duties imposed upon them.

The Offshore Licensing Regulations provide that the licensee cannot appoint an installation or well operator without giving written notice of the proposed operator’s appointment to the licensing authority. Furthermore, they place a duty on the licensee to ensure there are adequate provisions to cover any liabilities that may arise from the offshore operations. In particular, financial responsibility is placed on the licensee in respect of the prevention and remediation of environmental damage that may be caused. Finally, it is also noteworthy that the Offshore Licensing Regulations now provide that a breach of their provisions will constitute grounds for the termination of the operatorship or revocation of the license.

What do stakeholders make of these changes?

The EU Commission’s original proposal for an EU regulation with direct effect throughout the EU member states was greeted with considerable concern by UK stakeholders. There was a widely held view that the UK’s offshore regulation was in a large part already fit for purpose following the implementation of the Cullen Report in 1990, and a concern that an EU regulation might undermine it.

Generally, since the proposal was amended to take the form of a directive there has been greater support. It is recognised that there will be costs involved in stakeholder compliance but the industry is safety conscious and highly motivated when it comes to improving safety standards for those working offshore and reducing the risk of future offshore accidents.

Are the changes likely to succeed?

The EU Commission’s decision to introduce its desired reforms via a directive rather than a regulation seems a sensible one. The greater flexibility afforded to member states in implementing the requirements should greatly increase the chances of the Offshore Safety Directive’s success.

However, success may ultimately prove difficult to measure. In jurisdictions with sophisticated offshore regimes day-to-day success is likely to depend upon the ability of the Offshore Safety Directive to enhance existing systems without adding unnecessary complexity. In jurisdictions with emerging offshore fields, the Directive will need to promote new systems. The EU Commission has taken a pro-active stance so far and there seems every likelihood that it will continue to enforce progress in this area. A key area of difficulty seems likely to be the implementation of realistic financial responsibility requirements. These will need to strike the right balance between making proper provision for potential liabilities and avoiding stifling industry growth.

What do affected parties need to be doing between now and when the regulations come into force in July 2015?

In so far as the safety regime is concerned, a transitional period has been granted for existing installations, allowing parties involved with ongoing operations until 19 July 2018 to comply with the new regulations.

Otherwise, the regulations (including the Offshore Licensing Regulations) will apply from 19 July 2016. In the UK the offshore industry body, Oil and Gas UK, is providing significant guidance and assistance.

Affected parties will need to give thought to who will be the operator for the purposes of the regulations and ensure that the requirements of the regulations can be met. Licensees will need to be aware of the additional requirements and potential liabilities placed upon them and manage their risks accordingly.

Further assistance from the government is also expected, with guidance for the offshore industry on the changes introduced by the regulations due to be published by the Department of Energy & Climate Change and the Health and Safety Executive in April 2015.



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